You heard it here first: Psychology is key in options trading. Actually, you probably didn’t hear it hear first, but I bet when you did you didn’t believe it right away. To be honest, neither did I. When I started out as a retail trader, I had no idea how important psychology is to successful option trading. And even though I quickly learned this lesson, it took me several years to get a handle on it.
Trading Is Hard
Trading is hard and is not intuitive for most humans. To accept defeat, or a loss in options trading, goes against what you were brought up to believe. As humans, we want to be right because it makes us feel good about ourselves. But unfortunately, suffering losses from time to time, or even frequently, is a regular part of successful trading. Having a perfectionist mentality is not going to serve you well as a trader. Trust me, I know because I had that thought process and it certainly did me no favors.
Emotions Get in the Way
Having discipline and not letting your emotions determine trading decisions is crucial. Whether it be chasing bad trades or mismanaging trades, letting the emotions of trading get in the way dooms too many traders. I often tell my students you need to think of yourself as a risk manager before anything else. I tell them to repeat over and over to themselves, “I am a risk manager first.” Not only do you need determine risk and reward before entering any trade, but the process must also include examining the current risk and potential reward during the trade.
Becoming Disciplined
The easiest and I might argue best way to gain discipline as a trader is by sitting down and writing a trading plan. You have heard this before undoubtedly, as did I, but it is so true. Your trading plan doesn’t have to be a work of art. Just sit down and write it! You will make plenty of revisions as you are writing and thinking about it. Then comes the even harder part. You need to follow the plan. That was really tough for me. But why bother having a plan if you are not going to follow it through, right? Of course, over time there will be more revisions to be made.
Final Thoughts
I hope you take trading psychology seriously because it really is vital to your success as a trader. Remember, knowledge is power and understanding and controlling your emotions could finally get you over the hump when it comes to profitable trading.
By the way, if you haven’t already, be sure to register here for a free upcoming training on this very subject with MTM’s own Dan Passarelli.
John Kmiecik
Senior Options Instructor
Market Taker Mentoring
